Opinion
D072320
09-21-2018
NORTHERN CALIFORNIA INVESTORS III, LLC, Plaintiff, Cross-defendant and Appellant, v. 1401 CAMINO INVESTORS, L.P. et al., Defendants, Cross-complainants and Respondents.
Newfield Law, Simon E. Newfield; Law Offices of Ethan A. Glaubiger and Ethan A. Glaubiger for Plaintiff, Cross-defendant and Appellant. Cunningham, Treadwell & Bartlestone, James H. Treadwell and David S. Bartlestone for Defendants, Cross-complainants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2016-00002464-CU-MC-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Frederic L. Link, Judge. Affirmed. Newfield Law, Simon E. Newfield; Law Offices of Ethan A. Glaubiger and Ethan A. Glaubiger for Plaintiff, Cross-defendant and Appellant. Cunningham, Treadwell & Bartlestone, James H. Treadwell and David S. Bartlestone for Defendants, Cross-complainants and Respondents.
A commercial property owner sued the owners of adjacent commercial property seeking declaratory relief on the meaning of a parking use agreement and whether the agreement remained in effect. During the bench trial, the court found the agreement unambiguously had the meaning attributed to it by defendants (the agreement remained in effect), and the court refused to permit plaintiff to produce parol evidence to show the agreement was reasonably susceptible to a different meaning. Based on the court's rulings, plaintiff agreed it could not prove its case. The court thus entered judgment in defendants' favor on the complaint and dismissed defendants' cross-complaint as moot.
On appeal, plaintiff (Northern California Investors, III, LLC (NCI)) contends the court erred in rejecting its argument that the language of the parking use agreement unambiguously supports its interpretation and/or in refusing to allow it to present parol evidence on the meaning of the agreement. We determine the plain language of the agreement does not unambiguously support NCI's interpretation. We also conclude the court erred in failing to provisionally admit the proposed parol evidence, but determine the error was not prejudicial because the proposed evidence was not competent to show the parties' mutual intent or otherwise interpret the contractual language. Accordingly, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
This case concerns two parcels of commercial property on the same contiguous lot in the Rolando area of San Diego. Each parcel has a different owner. The larger parcel (5.4 acres) is owned by defendants (collectively Camino Investors), and is referred to as the Shopping Center parcel. It contains several commercial buildings, retail tenants, and parking spaces. The smaller property (.84 acre), located on the northeast edge of the Shopping Center parcel, is owned by plaintiff NCI, and is referred to as the Corner parcel. The Corner parcel contains one commercial building (leased to a restaurant) and about 80 parking spaces.
Defendants are: 1401 Camino Investors, L.P. and 9375 Associates, L.P.
In 1976, the then-owners (and/or lessees) of the two parcels entered into a parking agreement (Parking Agreement). The Parking Agreement provided the Shopping Center parcel owner with the right to use the Corner parcel's parking spaces and prohibited the parties from building or maintaining any structure on the Corner parcel's parking lot during the term of the agreement. The Corner parcel owner/lessee received no monetary compensation, but the Shopping Center parcel owner agreed to maintain and provide insurance for the Corner parcel's parking area. The Parking Agreement contained an expiration provision: "This agreement shall continue for a term of 30 years from July 1, 1976 [to July 2006]."
In about 2000 or 2001, the owners of the two parcels entered into discussions to extend the Parking Agreement. At that time, William Newton owned the Corner parcel and Rolando Plaza LLC owned the Shopping Center parcel. The largest Shopping Center building, which had been occupied by a Lucky's supermarket, was vacant, as were many of the other smaller Shopping Center parcel buildings. The Shopping Center was in a declining condition.
In March 2001, Newton and the owner of the Shopping Center parcel signed an agreement to extend the Parking Agreement (the Parking Extension Agreement). This agreement states the Parking Agreement "remain[s] in full force and effect" and "shall apply to the Shopping Center and to the Corner Parcel . . . in perpetuity," and that the parties intended this covenant to run with the land. But the parties conditioned this extension on a requirement that the Shopping Center parcel owner enter into an agreement to lease at least 80 percent of the former Lucky's space by January 1, 2006:
"Term of Agreement. Notwithstanding the foregoing, the Parking Agreement, as amended by this Agreement, shall automatically terminate and any rights granted to either party thereunder shall revert to the fee owner of the applicable parcel, on January 1, 2006 unless the owner of the Shopping Center Parcel enters into an agreement to lease at least 80% of the space formerly occupied by Luckys in the Shopping Center. The recordation of a Memorandum of Lease relating to such lease in the Official Records of San Diego County shall automatically satisfy the foregoing requirement."
The next year in early 2002, the Shopping Center owner (then Voit Rolando Partners, LLC) entered into two separate lease agreements with two different tenants (Save-a-Lot grocery store and The Salvation Army). Together these agreements leased 100 percent of the former Lucky's building space. Each tenant leased about 50 percent of the Lucky's space.
Four years later, in 2006, Newton sold the Corner parcel.
The next year, on April 16, 2007, the then-owner of the Shopping Center parcel recorded a document entitled "Memorandum of Lease and Satisfaction of Parking Agreement Condition" (Memorandum of Lease). The Memorandum of Lease stated in part: "[The Shopping Center parcel owner] . . . declare[s] that Save-A Lot Foods and The Salvation Army are tenants of the entire space formerly occupied by Luckys, pursuant to Leases entered into in 2002 . . . . This Memorandum of Lease is executed and recorded in order to give notice of the Leases and satisfaction of the condition required to make the [Parking Extension Agreement] a permanent easement running with the land of the [Shopping Center and the Corner parcel]."
During that same month, Camino Investors purchased the Shopping Center parcel. During the next seven years, the owners presumed the Parking Extension Agreement was in effect and continued to share parking use on the Corner parcel.
In 2014, NCI purchased the Corner parcel. Before the purchase, NCI was on notice of the Parking Agreement, the Parking Extension Agreement and the recorded Memorandum of Lease. In early 2015, NCI advised Camino Investors that it believed the Parking Agreement terminated more than eight years earlier in 2006 because there were two separate leases for the prior Lucky's store, rather than one single lease. NCI asserted the 80-percent condition in the Parking Extension Agreement could be satisfied only by a single lease of at least 80 percent of the Lucky's store space by 2006. Camino Investors disagreed, claiming the 80-percent condition was met by its predecessor's 2002 lease agreements that rented 100 percent of the former Lucky's property and by the owner's recording of the Memorandum of Lease in 2007.
Declaratory Relief Actions
The next year, in January 2016, NCI filed an action against Camino Investors, seeking a declaration that the Shopping Center parcel owner did not comply with the condition necessary to prevent the automatic termination of the Parking Agreement. As amended, NCI's complaint alleged that the 2002 leases of the former Lucky's space to two different tenants did not comply with the 80-percent condition because that condition required a single lease, rather than multiple leases. NCI alleged the purpose of the 80- percent condition was to ensure the Shopping Center parcel owner would lease to a large anchor tenant that would bring customers into both parcels and thus increase the value of the properties. NCI alleged the parties "never envisioned or agreed that [the Shopping Center parcel owner] could demise the anchor space and create multiple smaller spaces . . . to fulfill the 80% requirement . . . ."
In defense, Camino Investors claimed that under the contract's plain meaning, the 80-percent condition was satisfied by the Save-A-Lot and Salvation Army leases, which together leased 100 percent of the former Lucky's space. Camino Investors also asserted the action was untimely because the Corner parcel owner (or its predecessors) waited nine years to assert its claim that the 80-percent condition had not been fulfilled and the prior owners had engaged in actions reflecting a belief that the condition was satisfied. Camino Investors also filed a cross-complaint, seeking a declaration that it had the right to use the Corner parcel parking spaces under prescriptive or equitable easement doctrines, in the event the court agreed with NCI's contract interpretation. Camino Investors also alleged the Shopping Center parcel would not be in compliance with municipal parking regulations without the right to use those additional parking spaces.
Trial
Trial began with a hearing intended for the court to consider the parties' motions in limine, including motions to exclude the parties' designated experts. At the outset of the hearing, the court and counsel discussed whether a particular witness (a former Shopping Center parcel owner/principal who was in ill health) would be necessary, and the court ultimately decided it would postpone a decision on this issue until it had ruled on the motions in limine and whether it would allow extrinsic evidence on the meaning of the agreement.
The court then began considering the motions in limine. However, after a few minutes, the court said it would instead first decide whether the Parking Extension Agreement was ambiguous and whether extrinsic or parol evidence would be admitted on the disputed issues. Both parties agreed with this approach, and agreed that if the court found the Parking Extension Agreement's 80-percent condition provision had been satisfied by multiple leases, NCI could not prove its case and the matter would be concluded.
The parties then discussed the language of the 80-percent condition (the relevant portions of which we repeat here for the reader's convenience):
"[T]he Parking Agreement . . . shall automatically terminate and any rights granted to either party thereunder shall revert to the fee owner of the applicable parcel, on January 1, 2006 unless the owner of the Shopping Center Parcel enters into an agreement to lease at least 80% of the space formerly occupied by Luckys in the Shopping Center. The recordation of a Memorandum of Lease relating to such lease . . . shall automatically satisfy the foregoing requirement."
NCI's counsel focused on the singular form of the words "lease," "enters into an agreement," and "recordation of a Memorandum of Lease," and argued that if the parties had intended that more than one lease could fulfill the 80-percent leasing condition, "they could have very easily put down leases instead of saying in at least three places lease." (Italics added.) NCI's counsel also maintained that the word "agreement" used in the provision implies a requirement for a single agreement because otherwise the parties would have said only that the Shopping Center parcel owner is required to lease 80 percent of the space, without requiring "an agreement." NCI's counsel also told the court that the history and circumstances underlying the Parking Extension Agreement supported NCI's interpretation, but he would begin by discussing only the four corners of the document.
In response, Camino Investors's counsel argued: "If [the parties had] wanted this to be a single lease, they could have inserted that language. If they wanted this to be a 100 percent leasing to a certain type of tenant or to a single tenant, they could have put that language in there. None of that language is in there." Camino Investors also maintained the recording of the Memorandum of Lease established as a matter of law the 80-percent condition was fulfilled.
The court initially rejected Camino Investors's argument that the recording of the Memorandum of the Lease was conclusive on the issue. But it agreed with its position that the contract unambiguously permitted the Shopping Center parcel owner to satisfy the 80-percent condition by entering into one or more leases:
"[T]he plain meaning of the agreement says that 'Unless the owner of the shopping center enters into an agreement to lease at least 80 percent of the space formerly occupied by Lucky's.' . . . It doesn't say multiple. It doesn't say one. It says 80 percent of the space. In other words, 80 percent of that building had to be leased by that date. [¶] . . . . [Eighty] percent of the space means that it must be occupied under leases or lease. And I find that multiple leases justifies—can justify 80 percent of the space. We're talking about the space. We're not talking about one lease, two leases, three. . . . And in this case, it appears that 80 percent of the space had been occupied and leased out. [¶] That's my ruling. [¶] . . . . [¶] I'm not going to give you another chance to argue it."
NCI's counsel then said that even assuming the court found the agreement unambiguous on its face, California law requires a court to admit parol evidence relevant to show "latent ambiguities that are not apparent from the language." Relying on Winet v. Price (1992) 4 Cal.App.4th 1159 (Winet), counsel said a request to admit parol evidence triggers a "two-step process": First, the court must provisionally receive a party's proffered evidence to determine whether any contractual ambiguity exists, and, second, the court must determine whether this language is reasonably susceptible to the proposed interpretation. Counsel argued that under this test, the court should provisionally consider NCI's extrinsic evidence, even if it found the contract to be unambiguous on its face.
Camino Investors's counsel responded there was no need for testimony to be "permitted provisionally," because there were no "technical words" or "terms of art" used in the disputed contractual provision.
The court and parties then discussed the parol-evidence issue at length. During this discussion, NCI's counsel asked the court to consider certain deposition testimony of Newton (the Corner parcel's owner who signed the Parking Extension Agreement). According to counsel, Newton testified that he was willing to enter into the Parking Extension Agreement without any additional consideration based on his belief the Corner parcel would increase in value with a viable shopping mall on the adjacent property, and "the best way to revitalize [the] shopping center" would be to lease the former Lucky's space to a single large tenant. NCI's counsel also asked for permission to bring an expert real estate witness to explain the expert's understanding of the 80-percent condition in the context of an "anchor tenant" concept and to opine that a memorandum of lease generally refers only to a single lease and not to multiple leases.
Camino Investors's counsel countered that the Parking Extension Agreement did not contain the phrase "anchor tenant." He agreed that Newton entered into the Parking Extension Agreement "in the hopes of rejuvenating" the Shopping Center and of "it becoming an ongoing concern again." But counsel said this purpose was achieved by the lease of the space to two different tenants, as reflected in Newton's selling the Corner parcel several years after signing the Parking Extension Agreement.
After further discussing the issues and considering each counsel's arguments, the court declined to consider or admit NCI's extrinsic evidence—even provisionally—on the contract interpretation issues. The court reasoned it found the contract was not ambiguous and did not contain technical phrases or words of art. The court explained:
"I'm not changing my previous ruling. I find that the terms of this contract . . . are not ambiguous. I'm finding that the ordinary and plain meaning rule applies here. And that . . . there's no custom and practice or any type—something that an expert from the area needs to explain. And if they wanted to put in an anchor tenant, they would have put in [the words] an anchor tenant. For whatever reason, they didn't. [¶] I'm not going to get involved with what's going on here. I think what's happened is . . . that future buyers . . . have decided that they don't like this, but that's not enough to change it. So I'm finding that the agreement says what it says and it's not ambiguous and it will stand. Period. And I'm not going to allow extrinsic evidence."
Based on the parties' earlier agreement that this interpretation would effectively end the case, the court concluded the trial. The court later entered final judgment in Camino Investors's favor, stating, "The matter having been tried to the court, the exhibits of the parties having been received into evidence, the parties having rested, the court having considered all of the evidence and the oral argument of counsel," the court rules as follows: the Parking Extension Agreement "is unambiguous on its face, and thus is valid and in full force and effect having not been terminated at any time, and specifically extending all rights and interests pursuant to the terms contained therein in perpetuity." The court also stated that the Memorandum of Lease satisfied the lease condition contained in the Parking Extension Agreement, and therefore "extend[ed] all rights and interests pursuant to the terms contained in the [Parking Extension Agreement] in perpetuity."
The court found Camino Investors's cross-complaint seeking the declaration of easement rights was moot.
DISCUSSION
NCI contends the agreement unambiguously required the Shopping Center parcel owner to enter into a single lease agreement by January 1, 2006 for 80 percent of the former Lucky's space to satisfy the 80-percent condition. It alternatively contends the court prejudicially erred by refusing to consider parol evidence that would support this interpretation.
I. Did Parking Extension Agreement Unambiguously Require a Single Lease Agreement?
A. Contract Interpretation Principles
" '[The] goal in interpreting a contract is to give effect to the mutual intention of the contracting parties at the time the contract was formed. . . . We ascertain that intention solely from the written contract if possible, but also consider the circumstances under which the contract was made and the matter to which it relates. . . . We consider the contract as a whole and interpret its language in context so as to give effect to each provision, rather than interpret contractual language in isolation. . . . We interpret words in accordance with their ordinary and popular sense, unless the words are used in a technical sense or a special meaning is given to them by usage. . . . If contractual language is clear and explicit and does not involve an absurdity, the plain meaning governs. . . .' " (Orien v. Lutz (2017) 16 Cal.App.5th 957, 961-962, citations omitted.)
An appellate court applies a de novo review in construing a written contract, unless the interpretation turns on the credibility of competent extrinsic evidence. (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955-956 (Founding Members); Morgan v. City of L. A. Bd. of Pension Comrs (2000) 85 Cal.App.4th 836, 843.)
B. Analysis
The disputed contract provision states:
"Term of Agreement. Notwithstanding the foregoing, the Parking Agreement . . . shall automatically terminate and any rights granted to either party thereunder shall revert to the fee owner of the applicable parcel, on January 1, 2006 unless the owner of the Shopping Center Parcel enters into an agreement to lease at least 80% of the space formerly occupied by Luckys in the Shopping Center. The recordation of a Memorandum of Lease relating to such lease in the Official Records of San Diego County shall automatically satisfy the foregoing requirement." (Italics added.)
NCI contends the court erred in rejecting its argument that this provision unambiguously meant the Shopping Center parcel owner must enter into a single lease agreement, and not multiple agreements, to satisfy the 80-percent condition. We disagree.
Although the provision uses the singular form of certain words, this grammatical construction does not unambiguously convey a contractual requirement that only a single lease of 80 percent of the space will satisfy the contractual condition. The contractual language does not refer to a quantity of required lease agreements or use language restricting the number of leases or tenants that can fulfill the contractual requirement. Absent some affirmative language reflecting the parties' intent that only one lease would fulfill the 80 percent lease condition, we cannot construe the contract to unambiguously contain a numerical lease restriction. " 'Our function is to determine what, in terms and substance, is contained in the contract, not to insert what has been omitted. We do not have the power to create for the parties a contract that they did not make and cannot insert language that one party now wishes were there.' " (Holguin v. Dish Network LLC (2014) 229 Cal.App.4th 1310, 1323-1324.)
As it did below, NCI argues the word "agreement" must mean something, and if the parties had not contemplated a single agreement, they would have included only a requirement that the Shopping Center parcel owner "lease" the space without using the word "agreement." Although this may be plausible, it is not the most reasonable interpretation. The parties' specific use of a single 80-percent standard supports that the requirement concerned the amount of space leased in the former Lucky's building, and not the number of tenants occupying that former market space. Viewing the provision as a whole and reading the words in context, "an agreement to lease at least 80 percent of the space" concerns the nature of the space requirement, and not a numerical restriction on leases. Consistent with this construction, the "an agreement" phrase logically means the necessity of a contract between landlord and tenant for the occupation of the space, as distinguished from a requirement that the space actually be occupied by the tenant on the contractual deadline. (Italics added.)
We note that NCI's argument is premised on an assumption that a single lease agreement means there will be a single tenant occupying the space. However, even under NCI's proposed interpretation, a lessee could execute a single lease agreement for 80 percent of the space, and then subdivide the space for use by multiple tenants. Additionally, NCI's interpretation is inconsistent with the undisputed fact that the Shopping Center parcel customers continued to use the Corner parcel parking spaces for more than seven years after the two leases were recorded, without any apparent objection until NCI purchased the Corner parcel in 2014.
NCI's contention that the Parking Extension Agreement unambiguously requires a single lease agreement to satisfy the 80-percent condition is without merit.
II. Court's Refusal to Admit Parol Evidence
NCI next argues the court erred in refusing to admit its proffered extrinsic evidence. We determine the court erred in refusing to consider this evidence, but the error was not prejudicial. On our independent evaluation of NCI's proposed evidence, the evidence was not relevant to establish the parties' mutual intent or to otherwise interpret the contractual language.
A. Applicable Legal Principles
"The parol evidence rule generally prohibits the introduction of any extrinsic evidence, whether oral or written, to vary, alter or add to the terms of an integrated written instrument." (Alling v. Universal Manufacturing Corp. (1992) 5 Cal.App.4th 1412, 1433; see Code Civ. Proc., § 1856, subd. (a).) "Extrinsic evidence is admissible, however, to interpret an agreement when a material term is ambiguous." (Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1126 (Wolf).)
"The test of whether parol evidence is admissible to construe an ambiguity is not whether the language appears to the court to be unambiguous, but whether the evidence presented is relevant to prove a meaning to which the language is 'reasonably susceptible.' " (Winet, supra, 4 Cal.App.4th at p. 1165.) "The decision whether to admit parol evidence involves a two-step process. First, the court provisionally receives (without actually admitting) all credible evidence concerning the parties' intentions to determine 'ambiguity,' i.e., whether the language is 'reasonably susceptible' to the interpretation urged by a party. If in light of the extrinsic evidence the court decides the language is 'reasonably susceptible' to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step—interpreting the contract." (Ibid.; accord, Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 391; Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 37 (Pacific Gas).) "Extrinsic evidence offered to prove an interpretation to which a document is not reasonably susceptible is inadmissible." (In re Marriage of Dawley (1976) 17 Cal.3d 342, 353, fn. 7; see Admiral Ins. Co. v. Superior Court (2017) 18 Cal.App.5th 383, 388; Winet, at p. 1167 [parol evidence is inadmissible "to flatly contradict the express terms of the agreement"].)
Quoting at length from Justice Baxter's concurring opinion in Dore suggesting that the court reconsider Pacific Gas (Dore, supra, 39 Cal.4th at p. 395), Camino Investors argues that Pacific Gas's discussion of the parol evidence rule has been or should be limited. The argument is without merit. We continue to be bound by Pacific Gas and the majority opinion in Dore. (See Iqbal v. Ziadeh (2017) 10 Cal.App.5th 1, 8; Wolf, supra, 162 Cal.App.4th at p. 1126.) Pacific Gas and the two-part test for analyzing parol evidence remain viable.
"The trial court's ruling on the threshold determination of 'ambiguity' (i.e., whether the proffered evidence is relevant to prove a meaning to which the language is reasonably susceptible) is a question of law, not of fact." (Winet, supra, 4 Cal.App.4th at p. 1165; accord Adams v. MHC Colony Park, L.P. (2014) 224 Cal.App.4th 601, 619.)
B. Analysis
On our independent review, we agree with NCI that the court should have considered (at least provisionally) the extrinsic evidence offered to show the parties intended only a single lease would satisfy the 80-percent requirement. NCI requested the court admit the evidence to prove a meaning to which the contract language was reasonably susceptible. As discussed, the 80-percent condition does not identify the number of tenants or leases required to satisfy the condition and the relevant provisions use the singular form of words and phrases to refer to the necessary lease. Thus, evidence that the parties intended that only one lease would satisfy the contractual condition would not necessarily contradict the agreement's terms or be inconsistent with the contract.
Even if an agreement uses nontechnical terms and does not appear ambiguous on its face, a court is required to provisionally admit extrinsic evidence to evaluate whether the evidence is admissible to disclose a meaning to which the contract language is reasonably susceptible. The court erred because it declined to even consider the substance of NCI's proposed extrinsic evidence.
But this error does not require reversal. A reviewing court does not reverse a judgment for the erroneous exclusion of evidence unless the exclusion was prejudicial and caused a miscarriage of justice. (Evid. Code, § 354; Code Civ. Proc., § 475; see F.P. v. Monier (2017) 3 Cal.5th 1099, 1107-1108; Christ v. Schwartz (2016) 2 Cal.App.5th 440, 447.) An appellant is required to demonstrate "it is reasonably probable a result more favorable to the appellant would have been reached absent the error." (California Crane School, Inc. v. National Com. for Certification of Crane Operators (2014) 226 Cal.App.4th 12, 24.)
NCI did not meet this burden here. NCI seeks to show prejudicial error primarily by relying on the deposition testimony of Newton, the owner of the Corner parcel who signed the Parking Extension Agreement. NCI asserts this testimony "directly supports" that the parties intended the 80-percent condition could be satisfied only by a single lease of the former Lucky's space.
NCI sought the admission of Newton's deposition (rather than live) testimony because Newton lives out of state.
In this testimony, Newton said that when he entered into the Parking Extension Agreement, he was planning to sell the Corner parcel, but the Shopping Center parcel was "in decline," and mostly vacant (including the large building that had been previously leased to a Lucky's market). He said he understood he could sell the Corner parcel for a higher price if the Shopping Center parcel had a higher occupancy rate because this would bring additional customer traffic to the area. He thus requested the 80-percent condition to be included in the Parking Extension Agreement to promote the viability of the Shopping Center parcel and thus increase the value of his property. Newton then testified:
"Q [NCI's counsel]. . . . So you specifically required that the [Parking Extension Agreement] include this 80 percent provision?
"A. Right.
"Q. . . . Was this number 80 percent of the space formerly occupied by Lucky's the minimum necessary amount of the space that you would agree to for purposes of this 80 percent provision?
"A. Yes.
"Q. . . . And why did you require this 80 percent provision to be included in the . . . extension?
"A. I wanted that . . . the shopping center be reasonably developed to [get] back to full operation or to at least 80 percent so that . . . I'd be getting something for giving them the right to use that—have that reciprocal parking agreement extended. Okay. I . . . didn't want to . . . just to have maybe . . . one or two items or a small percentage of that. That was not the intent . . . of the agreement. It was the intent to get the thing revitalized and get it back—back to a fully or at least an 80 percent operational shopping center with satellite buildings.
"Q. And was the purpose of this 80 percent provision to obligate the shopping center to replace Lucky's or the space formerly occupied by Lucky's with a . . . similarly-sized tenant?
"A. Certainly.
"[Camino Investors's counsel]: Objection. Vague.
"[NCI's counsel] And was the intent of this 80 percent provision to obligate the shopping center to replace the space formerly occupied by Lucky's with a similar—similar quality tenant?
"A. Yes. [¶] . . . [¶]
"[Q.] Was the intent of this 80 percent provision to fill the space formerly occupied by Lucky's with another anchor tenant?
"A. That's correct. [¶] . . . [¶]
"Q. . . . Was it your belief that by putting an anchor tenant in at least 80 percent of the space formerly occupied by Lucky's—is it your understanding that that would attract increase traffic to the shopping center?
"A. That's correct. [¶] . . . [¶]
"Q. . . . Was it—was it your intention that this 80 percent provision would lead to the revitalization of the shopping center?
"A. Yes.
"Q. . . . So you reasonably hoped that this . . . extension would favorably impact both the shopping center and your corner parcel?
"A. Yes.
"Q. . . . And was a significant reason that you entered into this . . . extension was your reasonable hope that the shopping center would be revitalized? [¶] . . . [¶]
"A. Yes. [¶] . . . [¶]
"Q. . . . [S]o based on your requirement that this 80 percent condition be included in the . . . extension, is it your understanding that enter into an agreement meant enter into a single lease agreement?
"A. Of course.
"Q. As opposed to entering into multiple lease agreements?
"A. Yes. . . . [I]t was a single master lease. It was a single reciprocal parking agreement. I would have no—it was my—I just presumed it would be one single lease. Okay. [¶] . . . [¶]
"Q. And if a single lease agreement was not entered into prior to . . . January 1st, 2006, this . . . extension would terminate?
"A. That's correct.
"[Camino Investors's counsel]: Objection. Lacks foundation. Calls for a legal conclusion.
"[Q.] (By NCI's counsel) . . . So was that your intent with regard to this 80 percent provision when you entered into the . . . extension?
"A. Yeah." (Italics added.)
Viewing Newton's statements in the light most favorable to NCI, his testimony supports a conclusion that he desired, believed, and presumed that the 80-percent condition would be satisfied only by a single lease agreement. But there is no information in the record that this subjective understanding was shared by the Shopping Center parcel owner. Evidence of the undisclosed subjective intent of the parties "is irrelevant to determining the meaning of contractual language." (Winet, supra, 4 Cal.App.4th at p. 1166, fn. 3; accord, Reilly v. Inquest Technology, Inc. (2013) 218 Cal.App.4th 536, 554; Morrow v. Los Angeles Unified School Dist. (2007) 149 Cal.App.4th 1424, 1444; Achen v. Pepsi-Cola Bottling Co. (1951) 105 Cal.App.2d 113, 123 [contract interpretation is "not controlled in any sense by what either of the parties intended or thought its meaning to be"].) A party's "subjective statements of 'understanding' are irrelevant . . . , particularly where there is no evidence that [the other party] had the same understanding." (PV Little Italy, LLC v. MetroWork Condominium Assn. (2012) 210 Cal.App.4th 132, 157; Founding Members, supra, 109 Cal.App.4th at p. 956 [party's "undisclosed intent or understanding is irrelevant to contract interpretation"].)
NCI does not point to any portion of Newton's proffered testimony that pertains to the parties' mutual intent on the meaning of the 80-percent condition. For example, Newton never said he (or his attorneys) had discussed this "single tenant," "single agreement," or "anchor tenant" issue with the Shopping Center parcel owner, nor is there any evidence the parties had exchanged letters, notes, or other memoranda showing their shared intent that only a single lease would satisfy the contractual condition. Because Newton's testimony at most reflected the subjective understanding of one party to the contract and there was no evidence that this understanding was shared by the other contracting party, Newton's deposition testimony was not relevant to the contract interpretation issues before us. Accordingly, although the court erred in failing to consider Newton's proffered deposition testimony, this error was not prejudicial because our review of the deposition testimony shows it was not competent extrinsic evidence on the meaning of the parties' agreement.
Camino Investors contends the court's ruling was also harmless because Newton testified at his deposition he believed the Parking Extension Agreement remained in force when he sold the Corner parcel. We do not rely on this argument because Camino Investors did not seek the admission of this portion of Newton's deposition transcript at trial.
In the proceedings below, NCI also requested the court to admit the testimony of its expert to opine (1) on the manner in which the 80-percent condition would be most valuable to the Corner parcel owner, which involved explaining the concept of an "anchor tenant"; and (2) that a "Memorandum of Lease" would generally refer to a single lease agreement. The court declined to permit the testimony on grounds it found the agreement to be unambiguous, and "there's no custom and practice [terms] [in the contractual provision] that an expert from the area needs to explain."
In its opening appellate brief, NCI mentions its proposed expert, but does not contend the court erred in refusing to permit the expert's testimony on contract interpretation issues. In its reply brief, NCI contends the court erred by failing to allow it to make an offer of proof on the expert testimony and/or by failing to inquire more fully into the proposed expert testimony. NCI also argues the court erred because its "expert would have testified that only a tenant the size of an anchor tenant could have leased space the size of 80% of the Lucky space."
By failing to assert error regarding the expert testimony in its opening brief, NCI forfeited the issue on appeal. (See Taylor v. Roseville Toyota, Inc. (2006) 138 Cal.App.4th 994, 1001, fn. 2.) But even if we were to reach the argument raised in the reply brief, the record does not establish prejudicial error.
First, we find unsupported NCI's assertion that the court would not allow it to make an offer of proof regarding the expert testimony. The court permitted both counsel to argue at length on the issues, and counsel had the full opportunity to make a specific offer of proof as to the nature of the proposed expert testimony.
Second, on our independent review of the record, we are unpersuaded that NCI's expert's testimony would have been relevant and admissible on the contract interpretation issue before us.
Before trial, NCI designated Michael Russell as its real estate expert, stating Russell would testify regarding "industry standards concerning shopping centers and anchor tenants and anchor tenant classifications, benefits derived from anchor tenants in shopping centers, including impact of consumer traffic and benefits to adjoining businesses, and the negative impact caused by the loss of an anchor tenant." In a pretrial motion, Camino Investors sought to exclude this testimony, asserting that the meaning of an anchor tenant is irrelevant because the parties did not use that term in their agreement, and Russell's testimony about the meaning of the Parking Extension Agreement was not a proper subject of expert opinion.
In response, NCI argued that Russell's testimony was admissible, stating: "At his deposition . . . Russell testified that, given the size of the space at issue, only an anchor tenant could lease a space that size. Thus, contrary to [Camino Investors's] claims, Russell is not interpreting the [Parking Extension Agreement], but is merely explaining the industry standards and terminology for leasing commercial space given the size of the space at issue." NCI also said that Russell will testify "as to how industry custom and usage given the words used in the [80-percent condition] and under the circumstances under which the agreement was executed show the intent of the parties. [¶] Thus, while Russell will not render an opinion as to whether the agreement remains in place, he [could properly testify] about the standard in the industry as what constitutes [an] anchor tenant and the types of businesses [that] could lease a space as large as the one formerly occupied by Luckys."
This evidence was not relevant to interpreting the agreement. The evidence regarding the meaning of an "anchor tenant" and the impact of this type of tenant in a shopping center was not relevant because the parties did not use this phrase in their agreement. Moreover, during the trial, it was essentially undisputed that an anchor tenant provides substantial benefit to a shopping center. Both parties and the court expressed understanding that an anchor-tenant requirement would have been valuable to the Corner parcel owner because it would increase retail customer traffic and visibility for the property. But this evidence had only a tenuous relationship to the issue before the court as to whether these parties had the mutual intent to impose this condition when they signed the Parking Extension Agreement. Was the Shopping Center parcel owner willing to agree that the Parking Extension Agreement would be terminated unless it could reach a single lease agreement with an anchor tenant for the occupation of 80 percent of the former Lucky's space? Without some contractual language or a predicate factual basis to answer this question in the affirmative, an expert's opinion pertaining to the fact that a single or anchor tenant in the former Lucky's space would have been particularly beneficial to the Corner parcel is not relevant to the interpretation of the Parking Extension Agreement.
In its appellate brief, NCI argues the phrase "anchor tenant" was not used in the Parking Extension Agreement because it would create uncertainty as to whether a particular tenant qualifies under that definition, and the parties instead decided to impose a quantity standard (only one lease for the former Lucky's supermarket could satisfy the 80-percent condition). NCI says the absence of the word "anchor" from the Parking Extension Agreement was intentional because the parties did not want to create an ambiguity by using a "term of art" description that would have necessitated expert testimony.
NCI never asserted this justification below. Thus, the argument is not preserved on appeal. (Nellie Gail Ranch Owners Assn. v. McMullin (2016) 4 Cal.App.5th 982, 997.) Equally important, there is no evidence in the record that a concern about the use of the phrase "anchor tenant" motivated the parties to use the particular language in the agreement. And the undisputed evidence undermines this theory. If the parties had discussed the anchor-tenant requirement, but decided instead to use a numerical lease standard to ensure certainty and clarity, it would have been logical for the "only one lease" or "only one tenant" standard to be stated in the agreement. But the agreement as written does not include this standard. Instead, the Parking Extension Agreement states only that the owner of the Shopping Center parcel must "enter[] into an agreement to lease at least 80% of the space formerly occupied by Luckys in the Shopping Center." If the parties wanted to expressly ensure that the space would be leased only to an anchor tenant, and therefore wanted only one tenant to occupy that space, it is logical that the parties would have made that clear in the agreement. The use of the phrase "an agreement" is not the type of clarity the parties would have sought if they had the mutual intent to make this standard clear.
Expert opinion is generally inadmissible on the interpretation of contractual language. (Kasem v. Dion-Kindem (2014) 230 Cal.App.4th 1395, 1401; In re Tobacco Cases I (2010) 186 Cal.App.4th 42, 51; Summers v. A. L. Gilbert Co. (1999) 69 Cal.App.4th 1155, 1179-1180.) NCI has not established grounds for an exception to this rule.
DISPOSITION
Judgment affirmed. Appellant to bear respondents' costs on appeal.
HALLER, Acting P. J. WE CONCUR: IRION, J. DATO, J.